For years, merchant cash advance funders have said they aren’t lending, and their contracts say so in writing. The distinction is worth a lot to them, because a product that isn’t a loan doesn’t have to answer to lending laws.
Lately, that’s a harder case to make. Courts in Texas have been ruling the other way, Texas lawmakers passed rules built around the practice, and the Wall Street Journal just ran a long investigation into what MCAs do to the businesses that take them.
None of this is news to anyone in commercial finance. MCAs and factoring have always been built differently. What’s changed is that people outside the industry are now drawing the same line.
If we’re on the hero’s journey, Joseph Campbell would call this stage apotheosis: when the hero finally understands what he’s been up against the whole time. Here, we’ll cover what recent reporting found, what the courts and Texas lawmakers decided, and factoring’s place in it all.
Thirty Advances in Thirty Months
MCAs are roughly a $20 billion market. WSJ’s recent reporting follows one trucking company’s piece of the pie, from the first advance to the last.
Triways hauled goods out of Southern California for almost 50 years, employed about 60 people, and took in nearly $10 million in 2024. The owner wasn’t looking to expand, but a contract to serve Navy commissaries in four states came up that year, and taking it on meant more trailers and more drivers than the company had. It also meant finding money banks wouldn’t lend, as Triways couldn’t get past the line of credit it already had.
Getting the money was easy. MCAs get marketed on social media with promises of funding within 24 hours and no questions about past credit, and Triways took the bait. According to a disclosure document, the first advance carried an estimated annual percentage rate of 2,190% and the owner said he didn’t realize the expense when he signed.
That advance led to a second, and so on. Over roughly two and a half years, the company took more than 30, many of them covering payments on the advances before.
One day in November 2025 it signed two more, obligating itself to repay $674,550 in exchange for $427,500. Most of that went straight to clearing three earlier advances and a bank loan, leaving the company $5,815.60 to actually run on.
By April, Triways was in Chapter 11. By September, it closed for good.
Courts Call It Lending
In Texas, whether something counts as a loan never depended on what the paperwork calls it. The state’s usury test asks whether money was advanced, whether repayment is absolute, and whether the charge exceeds the legal maximum. A fixed daily debit that keeps coming no matter what a business collects makes repayment absolute, and at the rates these advances carry, the agreement meets all three. Courts have spent a decade reaching that conclusion.
In 2016, a Dallas appeals court heard a case over an agreement that advanced a chiropractor $96,000, obligated him to repay $192,000, and stated in writing that it “is NOT a loan.” The court held it usurious anyway.
The same reasoning held up this year, when a Texas federal bankruptcy court took apart a set of agreements signed by a construction company, voiding the interest and fees, awarding treble damages, and unwinding the obligations as fraudulent transfers.
New York reached a similar conclusion through its attorney general, who accused one large funder of making illegal high-interest loans disguised as advances. The 2025 settlement canceled $534 million in merchant debt, vacated judgments, released UCC liens, and permanently barred the company and two executives from the industry.
Texas Got It Right
Texas made the daily debits that drained Triways much harder to set up. Under HB 700, a funder can’t pull money out of a business’s checking account unless it holds first claim on that account.
Holding a claim is what every other lender already does. A bank or a factor that wants the right to a business’s assets files for it publicly. If the business fails, whoever filed first gets paid first. MCA funders were taking money out of the account daily without filing anything, putting them ahead of everyone who had.
That first claim is hard to come by, because the business’s own bank has usually already filed for it. A funder that wants to keep taking daily payments in Texas has to get in front of its customer’s bank, and most won’t.
The law leaves the advances themselves alone, banning nothing and capping no rates. What it does instead is make a funder show its terms. The finance charge, the total repayment, and every other fee have to be stated in writing and signed before the deal closes. A funder also can’t use a confession of judgment, the clause that lets it get a judgment against a business without notice or a chance to defend. Violations run $10,000 apiece.
A factor buys the invoice outright and sends the customer a letter telling them to pay us directly. That letter goes out at the start, and everyone involved knows it’s coming. The funders behind Triways sent its customers the same kind of letter, but only after the company fell behind, telling them to hold payments and route them to the funder’s lawyer.
We file, we disclose, and the business knows the cost before it signs. All Texas did was require it of everyone.
The Next Call
The Kansas City Fed reported in October that small businesses in its district have been turning to advances for liquidity. Their cost and the confusion around how they work have made conditions worse. A business turned down by its bank still needs the money, and their next call usually goes to someone making the same offer Triways took.
Back Room Services was built so that call comes to us. The cost is a discount against specific invoices, so it rises and falls with what the business actually ships, and the owner knows what the whole thing costs before signing. Dare checks the customers behind those invoices, runs the underwriting, and services the facility.
In a hero’s journey, the danger stays the same. The hero’s understanding of it is what changes.
MCAs work the way they always have.The distinction we’ve been making for years is now written into Texas law. A business you can’t fund on your own terms can still be funded on ours, and it stays your customer either way.
Ready to fund the deals you’ve been passing on?
As a Dare Back Room Service partner, you’ll get access to:
- Greater Income (like a lot more)
- Owning assets instead of commissions
- Zero investment down
- No personal liability
- Fifty-fifty split on risks and profits
- Portfolio management software from NN6, LLC
Want to learn more? Give us a call.
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